One of the best attended sessions at last fall’s ICAEW Valuations
Conference in London was ‘Valuations in Divorce,’ led by PwC’s Sarah
Middleton and Jonny Rodwell. These cases continue to show up in the
courts—and in the morning papers.
Middleton and Rodwell managed to work around the celebrity gossip to
focus on the most contentious valuation issues in recent cases. For
- Cooper-Hohn v Hohn
(the largest UK divorce settlement ever) offered the business valuation
profession a great deal of guidance on business or personal goodwill.
‘Key man,’ management structure, relative transferability of the
marital partners under new ownership, and transactions involving
similar businesses all played an important role in determining this
settlement. The Court concluded ultimately that Hohn was unlikely to
work for someone else, and that the business had no market without him.
As the Court of Appeal agreed, ‘it is speculative to suggest that a
purchaser could be found to pay for an income stream that can and would
walk out the door…’
- Liquidity is nearly always a challenge in divorce valuations. As
Middleton and Rodwell said, ‘despite having a large number of assets or
being highly valuable, some companies face significant challenges in
easily extracting cash.’ Asset breakup to cash can destroy the
business, and may be costly and slow, so the business valuer must make
a clear determination of how easily various assets (dividends, surplus
cash, surplus assets, committed capital, external debt, preference
share, etc.) can be converted to a transferable status.
- A final issue that PwC valuers face regularly is marketability and
liquidity discounts related to the value of shares. Middleton and
Rodwell cited the 2017 Martin v Martin case where the courts
examined share-to-cash discounts of between 30% and 50%, and whether
these discounts might value ‘account realisation difficulties twice.’
‘We need to be clear in how we differentiate and treat both the
underlying riskiness of each asset class, and the risk around the
robustness of our assumptions,’ Middleton concludes.
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